On the first day of its fiscal year, Lessor, Inc., leased certain property at an annual...

 

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On the first day of its fiscal year, Lessor, Inc., leased certain property at an annual rental of $100,000 receivable at the beginning of each year for 10 years. The first payment was received immediately. The leased property is new, had cost $650,000, and has an estimated useful life of 13 years with no salvage value. The rate implicit in the lease is 8%. The present value of an annuity of $1 payable at the beginning of the period at 8% for 10 years is 7.247. Lessor had no other costs associated with this lease. Lessor should have accounted for this lease as a sales-type lease but mistakenly treated the lease as an operating lease. Lessor depreciates all of its properties using the straight-line depreciation method. Ignoring tax effects, what was the effect on net earnings during the first year of treating this lease as an operating lease rather than as a sale? why answer is :: Understatement of $74,676. On the first day of its fiscal year, Lessor, Inc., leased certain property at an annual rental of $100,000 receivable at the beginning of each year for 10 years. The first payment was received immediately. The leased property is new, had cost $650,000, and has an estimated useful life of 13 years with no salvage value. The rate implicit in the lease is 8%. The present value of an annuity of $1 payable at the beginning of the period at 8% for 10 years is 7.247. Lessor had no other costs associated with this lease. Lessor should have accounted for this lease as a sales-type lease but mistakenly treated the lease as an operating lease. Lessor depreciates all of its properties using the straight-line depreciation method. Ignoring tax effects, what was the effect on net earnings during the first year of treating this lease as an operating lease rather than as a sale? why answer is :: Understatement of $74,676.

Answer rating: 100% (QA)

Lessor Accounting The lessor shall record the lease receivable at the Present value of Lease payment ... View the full answer